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Dramatic Decline in Foreign Investment Impacts China’s Economy

Foreign direct investment (FDI) into China saw a significant decrease of 56% in the first quarter of the year, reflecting ongoing concerns over the country’s economic stability and deteriorating diplomatic relations with the United States, according to Nikkei Asia. During this period, overseas businesses invested approximately $10.3 billion in China, focusing on projects such as factory construction.

Despite these new investments outpacing capital withdrawals, the net investment figures were still notably lower than those of the previous year. Contributing to the reluctance of businesses to invest in China are factors like the ongoing tech and trade wars with the U.S. and the recent implementation of China’s counter-espionage law. This law, which is broadly defined and was enacted last year, has heightened the risk for foreign businesses and their employees, who now face potential penalties for ordinary business activities.

Additionally, an increase in regulatory actions such as raids, fines, and exit bans on foreign firms and their staff has further dampened business sentiment. FDI into China has been consistently falling, with double-digit decreases every month since May 2023, leading to the country recording its first-ever quarterly FDI deficit in the third quarter of the year.

A report released in February underscored this trend, revealing an 80% plunge in FDI into China, marking its lowest level in thirty years. According to Nikkei, this prolonged FDI downturn could exacerbate the difficulties facing the already struggling Chinese economy, potentially slowing technological innovation and production capabilities in the world’s second-largest economy.


Foreign Direct Investment

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